Tips for planning for job loss, divorce, and disability

Even the most assiduous planner can be waylaid by certain calamities. Although people can’t expect the unexpected, good preparation can help them get back on course sooner. CRMA’s experts looked at three situations—job loss, divorce, and disability—that can wreak havoc on long-term financial plans and outlined steps to help people bounce back and move on.

Job loss: In today’s uncertain economic climate, it makes sense to keep your resume current so that you can start a job search immediately if necessary. Stay marketable by keeping your skills up to date and perhaps develop some new ones. Ideally, you should have an emergency fund of at least 3 to 6 months of living expenses in an accessible account and 9 months’ worth if you’re the sole wage earner for your family.

Divorce: If you took your vows without a prenuptial agreement, there are other things you can do to protect yourself. Typically, couples don’t divorce overnight but get a gradual sense that the marriage is unraveling. That’s when you should start to take action, just in case. If all the family’s financial accounts are in your spouse’s name, you’ll have a hard time establishing credit after divorce, so build your credit profile by opening bank and credit accounts in your own name.

Disability: Some 43 percent of all 40-year-olds will have a disability lasting 90 days or more by age 65. Your employer might offer some disability coverage as a benefit or as an optional insurance. If you enrolled in an employer-sponsored plan years ago, make sure your coverage is on par with your current income level. If your disability is likely to be permanent, immediately apply for disability benefits from Social Security, which can take awhile to kick in.

Consumer Reports Money Lab Smackdown: ETFs vs. Index Funds

The CR Money Lab pitted five major index-based exchange-traded funds against their open-ended index mutual fund counterparts and the result was largely a split decision. CRMA’s experts compared expenses, returns, and how well they tracked their index over the past six years.

Both the index funds and the ETFs tracked their indexes reasonably well and there were no significant differences between the two types in tracking the S&P 500 and S&P MidCap 400 indexes. But in the category of emerging markets, the traditional mutual fund held a significant performance advantage over the ETF. Unlike the other pairs CRMA studied, the emerging markets ETF was much more expensive than the mutual fund.

The bottom line: For any sort of tax sheltered account, such as an IRA or college savings plan, ETFs may not make much sense. But some narrowly focused ETFs like gold and other  commodity  ETFs are less tax efficient and so might be more suitable for an IRA than a taxable account. But that doesn’t mean there’s no place for ETFs in your portfolio. And you can use the more specialized ones to tweak your asset allocation.

Consumer Reports Money Adviser is a monthly newsletter that answers tough money questions and provides expert financial advice. Its proven information and successful strategies make any financial decision an easy one. Each month, CRMA provides feature articles and helpful investment, savings, and spending advice that will prepare consumers for anything life may bring them.